What's Hot and What's Not - Asia Pacific Real Estate

31 January 2017

Asia Pacific is seeing a new wave of liquidity driven by institutional capital and sovereign wealth funds and augmented by cash from private sources, either domestic developers (in particular from China, Korea and Japan) or corporate and high-net-worth players, according to latest data shared by international real estate adviser, Savills.

There is liquidity aggressively seeking to diversify not only across borders, but also asset classes and risk spectrum. The two-way flow of capital from east to west/west to east involve local investment opportunities and search for joint venture partners and requires high quality intermediation at both ends. Hong Kong and Singapore are successfully establishing themselves as investment platforms for Asian funds, especially private wealth.

Hong Kong, Singapore and China are the main investors within the region in Q1-Q3/2016. In 2017, they will continue to be active but we will see more Korean and Japanese capital and maybe Indian capital.

The promising socio-economic profiles of South East Asian countries is likely to attract a sizeable amount of foreign investment. Respectable economic growth is expected for Malaysia, Indonesia and Philippines over the next 5 years. For the period 2017-2021, the average annual GDP growth for Malaysia is forecasted at 4.84% and for Indonesia at 5.8%.

MALAYSIAIn Malaysia, the GDP per capita is the highest amongst the developing ASEAN-5 economies. For the next 5 years, the IMF forecasts Malaysia’s GDP Per Capita to remain above that of China. In short, Malaysia’s purchasing power is still expected to remain strong.

However the strong growth fundamentals have been overshadowed by controversies over 1MDB, Malaysia’s sovereign-wealth fund. As a result, there has generally been low interest from foreign capital, but the astute investors recognize the fundamental strengths of this market.

We like Malaysia. There is just too much pessimism. Fundamentals are strong, currency is weak and FDIs into Malaysia are strong. Chinese investments represent 16% of Malaysia’s 2015 GDP. If spread over 20 years, it adds 0.7% pa of growth to Malaysia’s GDP baseline in 2015. We anticipate higher interest levels as well as investment activities in Malaysia over the next 12-18 months.

INDONESIAIndonesia is an economy with massive potential. The fundamentals are strong and FDIs into Indonesia are strong. The astute investors’ focus will be on high quality commercial opportunities in Kuala Lumpur.

Chinese investments represent 35% of Indonesia 2015 GDP. If spread over 20 years, it adds 1.8% pa of growth to Indonesia’s GDP baseline in 2015. We anticipate higher interest levels as well as investment activities in Indonesia over the next 12-18 months.

More importantly, the country is beginning to see some semblance of a viable tax system with the successful implementation of its tax amnesty program. In the first three months, the initiative already managed to capture 90 per cent of its 4 quadrillion rupiah target. For the first time in a long time, Jakarta appears unencumbered by roadblocks.

“In the year ahead, we anticipate an increase in investment activity especially from sovereign wealth funds and large corporate groups. In South East Asia, the healthy pipeline of both green and brown field development opportunities, particularly in markets such as Indonesia, Malaysia, Vietnam, and Myanmar, will increasingly become beneficiaries of these institutional capital.” shared Benjamin Tan, regional director of regional investment advisory at Savills.

Malaysia is a strong candidate, as the GDP per capita is the highest amongst the developing ASEAN-5 economies and purchasing power remains strong. As for Indonesia, it has the latent potential to grow, and in light of recent pro-business policy changes is closing the gap between its actual output and its potential.

Benjamin added “With China’s investments as a growth catalyst, both economies are primed for renewed and keener investors’ focus.”